ALTHOUGH Vanke started its business in the area of trading and retailing, property development has now become the most important operation, accounting for approximately 75 per cent of total operating profit in 1992. ''Property development will be the core business of the company from now on,'' said Mr Wang Shi, chairman of the Shenzhen Vanke Company. The company entered the property development market in the South China region in 1988, when the market was at a relatively early stage of development. Since then, it has increased the allocation of resources to property development in both the Yangtze Delta region and the Buohai region. Many mainland companies possess a very diversified business base, operating different kinds of businesses and lacking a unique or core business of their own. Mr Wang admitted that it is a common phenomenon of listed companies in Shenzhen. ''To make it sound better, we call it diversification, although some might call it doing business at random,'' he said. He said that many companies were aware of the disadvantages of doing business at random. However, it was difficult for them to avoid such a policy. For example, Vanke engaged in trade in its first eight years. Those involved in the different kinds of trade and manufacturing in China have to overcome certain difficulties because the resources are allocated by the central government. ''If a certain company wants to participate in a certain trade, the process of application and approval will take ages, as such, the development of the company will slow down,'' Mr Wang said. For this reason, many industrial or trade companies have diversified into property development. Unlike other mainland property developers, which target either the high-risk, high-end of the market for foreign home-buyers or low-quality low-end housing for domestic end users, Vanke has positioned itself in the medium-priced, high-quality segment of the residential market in the mainland. The demand for housing from this segment of the market tends to be less risky, because the purchasing power from the middle-income group in China is relatively stable. According to the listing document, about 75 per cent of the $471 million yuan (HK$348.5 million) proceeds from the B share issue will be used for property development. Vanke's property development focus will remain in the abovementioned three key regionsto take advantage of the higher living standards, wage levels and the increasing demand for high-quality residential and commercial properties there. Vanke has a unique policy in its property development business. Its long-term objective is to develop itself into a nationwide property company with quality management. When developing its property, management always takes into consideration the purchasing power of end-users and the impact on the environment. ''Our strategy is to focus on the highly populated areas, and we are very careful in choosing the future development sites,'' said Mr Wang. Vanke actually pioneered the provision of transportation for the residents of its Vanke City Garden project in Shanghai. It also offered different forms of financing for home buyers such as payment in instalments and 40 per cent mortgage financing. Apart from property development, Mr Wang foresees the potential of equity investment will have a good potential for the company. Mr Wang explained that the principal objective of Vanke is to achieve long term capital appreciation through equity investments in unlisted companies in the mainland. Vanke intends to assist selected target companies to reorganise into shareholding companies, but they must have the potential to meet the listing requirements of one of the official stock exchanges in China. ''From September 1990 to March 1993, our company has invested in 18 China companies for a total cost of 65 million yuan, and only one of the companies, Hainan New Energy Co is listed,'' Mr Wang said. Bohai Chemical Industry, another one in the investment portfolio is to be listed in Hongkong soon. ''Our strategy for its equity investments appears very profitable and rewarding,'' said Mr Wang. The company issued 45 million new shares at $10.53 per share to raise about $473 million. About 150 million yuan will finance the acquisition of land, about 170 million yuan is to finance the property development projects. On the management policy, Mr Wang admits that most of the mainland companies lack transparency at the management level. Mr Wang said over 65 per cent of the shareholdings in the listed companies in Shenzhen are held by the state, and around 75 to 85 per cent in Shanghai. ''Many companies are still at the transition stage from being state-owned companies to shareholding companies. So the majority of shares are held by the operator, but we would like to see the percentage holding of Vanke lowered to 60 per cent. ''It would be beneficiary to the company's development in the long run,'' he said. FACT FILE Shenzhen Vanke Company Ltd. Background: Set up in 1984 as a state-owned enterprise. The company was reorganised into a shareholding company in 1988, and its A shares have been listed on the Shenzhen Stock Exchange since 1991. Profits: $12 million(1991); $39 million (1992); $147 million (1993, forecast by Standard Chartered); $210 million (1994, forecast by Standard Chartered). Business: Property development, electronic, medical, equipment and garments trading; electronic colour separation; entertainment and advertisement. Contact: Mr Wang Shi, Chairman of Shenzhen Vanke Co. Address: No. 50 Heping Rd, Shenzhen, China. Tel: 557-5900, Fax: 557-1831.